Panic sets in; Nifty trims its gains, 18,400 key level to watch out for!

Failure to hold above this level would result in a gap-up fill

Market Update at 10:20 AM: What an interesting trade it has been on D-Street in the last half an hour! At one point in time, Nifty shed almost 200 points from the highs of the day; however, it has managed to recover nearly 80 points from the day's low.   

In our morning update, we had clearly mentioned that it's time to be watchful and we hope our update would have helped the readers to book profits at the right time.   

Going ahead, the panic low of 18,400 is likely to be an important level to watch out for the index. Failure to hold above this level would result in a gap-up fill of October 18. 

The festive mood continued on D-Street on Monday as Nifty opened the session with a gap-up. With this, it witnessed a gap-up opening for the third consecutive trading session. After a gap-up, it made a high of 18,543.15, and thereafter, it witnessed some profit booking as it slipped nearly 66 points from the day’s high and finally settled at 18,477 mark, up by 0.76 per cent.  India VIX jumped nearly 9 per cent on Monday.  

Infosys was among the top contributors to Nifty’s kitty as it single-handedly contributed 67 points. Among the sectoral indices, Nifty PSU Bank jumped 3.98 per cent, followed by Nifty Metal, which soared 3.89 per cent.   

The candlestick formation on the daily chart is not an encouraging one as its closing was below the opening. Having said that, it has maintained its rhythm of higher highs & higher lows while the most important point to note here is that now, there is a back-to-back opening upside gap on the daily chart, which remains unfilled.   

Another interesting observation with respect to the movement of Nifty and 20-DMA is that whenever the gap between Nifty and 20-DMA gets widened, the index reverts to its mean. Currently, the index is almost 3.69 per cent away from its 20-DMA and in the past, we have seen that after the index gets stretched between 3.61 per cent and 4.06 per cent from its 20-DMA, it has reverted to its mean. Hence, it’s time to be a bit watchful as short-term consolidation and breather could be on the cards. Furthermore, the index has closed above the upper Bollinger band for the third trading session, which is usually a sign of the overbought condition.   

In the coming trading session, the level opening upside gap area of 18,350.75-18,445.30 is likely to act as an immediate support level.   

The ADX is above the 41 mark, which indicates strong trend strength. Interestingly, the +DI line has witnessed a crossover and it is trading above the ADX, which is clearly indicating that the bulls are in the driving seat.